Great Merchandising Never Goes Out of Fashion

In today’s ever-evolving fashion landscape, great merchandising is a timeless skill. While the apparel, fashion, and luxury markets grow increasingly digital, those companies that master the art of merchandising gain a significant competitive edge. But what exactly does merchandising entail?

Merchandising involves many interconnected skills — understanding products, managing quantities, analyzing consumer behaviors, choosing the right channels, timing, pricing, and even replenishment strategies. Each of these elements plays a crucial role in creating value and competitive advantage in the retail world.

The Challenge of Optimizing Merchandising

Merchandising is notoriously difficult to optimize, particularly in the current economic climate. According to McKinsey, nearly 97% of fashion executives expect rising costs in 2023, including goods sold and administrative expenses. This has spurred a greater desire to simplify assortments and manage costs more efficiently. In fact, 98% of executives cited improving go-to-market and merchandising processes as a top priority even before the pandemic, and this sentiment has only grown post-pandemic.

With mounting economic pressures, the need for effective merchandising has become more urgent. Many companies are exploring new approaches to improve efficiency, with a particular focus on leveraging digital tools. As of 2021, 58% of fashion executives were prioritizing the use of data and analytics for assortment planning.

Shifts in the Merchandising Model

Several shifts in the industry’s merchandising model are opening new opportunities for decision-makers who can optimize their operations to respond to these changes:

1. Economic Uncertainty Demands Leaner Models: As inflation rises and operating costs soar, fashion brands are under increasing pressure to embrace leaner business models. Focusing on core products and streamlining assortments can help brands ensure each dollar earned goes further.
2. Consumers Demand Newness and Storytelling: Despite economic pressures, customers are still seeking fresh, innovative products and compelling brand stories. Brands need to offer agility and alignment across functions to ensure quick time-to-market and maintain consumer excitement.
3. Sustainability Takes Center Stage: As consumer attitudes shift, brands are under more pressure to clean up their act. Sustainability is becoming a key factor in merchandising, with companies focusing on waste reduction, sustainable materials, and circular business models.
4. Channel Dynamics Are Evolving: E-commerce and direct-to-consumer models surged during the pandemic, but as growth slows, many brands are recalibrating their strategies and diversifying their channel mix to include wholesale and third-party marketplaces.
5. Data and Insights Drive Performance: The importance of digital tools and data analytics in merchandising cannot be overstated. Integrated digital solutions are enabling brands to optimize pricing, manage promotions, and improve range planning with a sharper focus on customer insights.
6. Talent Challenges Put Pressure on Operating Models: The competition for talent is fierce. As companies strive to build agile merchandising teams, defining clear roles and ensuring cross-functional collaboration are key to attracting and retaining top talent.

Taking Action in a Shifting Landscape

To navigate these challenges, companies need to adapt and implement strategic priorities that enable them to succeed in a volatile environment. Some key actions for adapting the merchandising model include:

1. Segment Go-To-Market Calendar: Implement multilane calendars to streamline newness and continuity processes, speeding up time to market and reducing risks.
2. Adjust Sourcing Models: Define sourcing strategies that balance speed, cost, quality, and sustainability.
3. Focus on Net Margin: Ensure KPIs and incentives are aligned to focus on net margins and tackle challenges like declining full-price sell-through.
4. Scale Up Test and Repeat: Use data and analytics to test and repeat, identifying best-selling lines and responding quickly to shifting demand.
5. Manage Open-to-Buy: Increase open-to-buy shares to reduce risks associated with seasonal stock and make demand-driven assortment decisions.
6. Simplify Range Complexity: Streamline assortments by reducing SKU complexity to improve efficiency and reduce excess stock.
7. Define Clearance Strategy: Plan a clear path for clearing stock while maintaining brand strength through omnichannel strategies.
8. Create Organizational Clarity: Empower merchants by providing the necessary training and cross-functional support to drive excellence.
9. Walk the Talk on Sustainability: Make sustainability a core business KPI, ensuring clear targets for sustainable product development.

Conclusion

In a challenging economic environment, companies that embrace these strategies will create the most agile and responsive merchandising models, positioning themselves to thrive in the face of uncertainty. By adapting to these shifts, fashion brands can not only weather the storm but also set the stage for future growth as the market recovers.

Click to read more: https://www.mckinsey.com/industries/retail/our-insights/great-merchandising-never-goes-out-of-fashion

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